When making plans regarding your estate and the inheritance you wish to pass to your loved ones, taxation is likely the last thing on your mind. But if you do not pay it close attention, taxes could end up making a significant dent in your loved one’s inheritance.
Fortunately, there are ways you can mitigate this. There are several actions you can take while creating your estate plan that can reduce the taxes your loved ones must handle.
The IRS discusses certain avenues you can use to reduce taxes. First, include donations in your will. When you bequest something to charity, it is deductible from your estate taxes. You can even make conditional clauses.
You can also create a life insurance trust. Life insurance itself is subject to taxation of the estate. However, if you set up an irrevocable trust for your life insurance, these policies get removed from the tax estimation.
Using gift tax exemptions
You can also make use of the federal gift tax exemption. Under this exemption, you can give gifts of up to a certain amount of money or value to your loved ones or relatives. The limit applies to each individual that you gift something to, not the cumulative total of your gifts. A lifetime exemption sets the total value of the gifts you can pass on to family and loved ones, though.
On top of that, certain types of presents or gifts have no estate or gift levies from the start, which can make passing on certain assets a much easier task for you.